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Or it ends in a market crash. When interest rates are zero, savers have no choice to build on wealth except the market. This is why the market continues to hit

Or it ends in a market crash. When interest rates are zero, savers have no choice to build on wealth except the market. This is why the market continues to hit higher and higher records, and at some point people will lose trust in the market and flee. Hyperinflation can always come after the bubble bursts.

thinkingkong 6y ago
Flee to where?
- the-dude 6y ago
  Crypto?
  - toomuchtodo 6y ago
    Central banks will outlaw it because they can't control it and devalue it (either through negative interest rates or helicopter money). Remember when the US outlawed holding gold? [1] [1] https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102
    - kinghajj 6y ago
      1. Central banks (at least, the US Fed) doesn't have the authority to declare crypto tokens illegal unilaterally. 2. EO 6102 made sense with the gold standard. It wasn't just an "FU" to gold hoarders, but a way to raise revenue to counter the depression. It's not clear to me that it would make sense for such a confiscation of crypto, especially if the legislature were to try option #1.
      - deleted 6y ago
        [deleted]
    - nostrademons 6y ago
      They probably will, but central government authority tends to collapse when hyperinflation begins. Venezuela (and the international community recognizing Venezuela) can't even agree on who the president is, and 60% of the Venezuelans who do work do so in the informal sector.
    - PragmaticPulp 6y ago
      People are giving too much credit to cryptocurrencies as the only vehicle for dodging inflation. Any asset that rises with inflation (most of them) is a sufficient vehicle for avoiding having your cash devalued. People could simply exchange their domestic currencies for foreign currencies of more stable countries. That's what happens in countries with hyperinflation right now, despite access to cryptocurrency. The only real advantage of cryptocurrency is that it could be transferred around hypothetical government controls. That's more of an extreme edge case scenario, though. To be clear: The US inflation is too high, IMO, but it's nowhere near hyperinflation or government collapse. The average citizen is more likely to benefit from recent stimulus packages than to lose out from it. It's not like everyone keeps their 401K invested in pure cash. That said, we're overdue for interest rates to start creeping up. COVID is coming to an end quickly and the unemployment never really got out of control in the first place. People aren't going to go bankrupt if their mortgages go back to 4-5% instead of 2-3%
      - nostrademons 6y ago
        > People could simply exchange their domestic currencies for foreign currencies of more stable countries Most of the developed nations are competitively devaluing their currencies. If one country does it, they gain a trade advantage: their exports are relatively cheaper on the world market, so consumption flows to their industries and makes them wealthy. Therefore once one country does it, they all have to do it, lest all their export industries become uncompetitive and they lose those jobs. I've heard some speculation (nicely backed up by data [1]) that the real reason we couldn't follow through with monetary tightening 2015-2018 is because it created a carry trade of investors borrowing in Euros and investing in dollars [2], which led to a continual outflow of dollars out the door. If hyperinflation hits it will likely hit nearly all the developed world in short succession. If the dollar goes, all investors are going to dump dollars for Euros, but if they do that the value of the Euro will skyrocket, which means European exports will become super expensive and Euro-denominated debt will be harder to pay off, which will spur European central banks to dump more Euros into the system. As long as we have free capital flows there's no way around this: inflation in one fiat currency will lead to inflation in others. That's why people are looking for non-fiat currencies. (You're right that tradable assets like stocks can fulfill this job rather than cryptocurrency, though.) [1] https://www.pimco.com.br/-/media/global-assets/resources/education/negative-interest-rates/pimco_education_negativeinterestrates_dec2016_fig1.ashx?vs=2&d=20200608172439&hash=6F738875B6A5CD075D764B03B3DDCED114E89C48&la=en-br https://www.pimco.com.br/-/media/global-assets/resources/edu... [2] https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac406 https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac...
    - tachyonbeam 6y ago
      > Central banks will outlaw it because they can't control it and devalue it Except that, many rich investors and large corporations are putting money into crypto as we speak. Some of those large investors may include people who work in the government and at central banks. I tend to think that, these people will have a conflict of interest there. It might be in their own best personal interest to not ban crypto, and to leave that door open. In other words, it might soon be too late to ban crypto. The ball already started rolling down the hill.
      - deleted 6y ago
        [deleted]
      - 1996 6y ago
        > In other words, it might soon be too late to ban crypto. The ball already started rolling down the hill. In other words, it might soon be too late to ban crypto. The ball already started rolling down the hill. Great analysis. Give it another few years: then when most of the S&P companies will hold crypto, along with your richest supporters and voters, trying to ban it will become political suicide.
    - tabs_masterrace 6y ago
      Remember Crypto knows no borders, it's decentralized, peer to peer, and private keys aren't seizable by force. Central banks may outlaw it, and that will hurt, but it's not going to put an end to it. Especially should USD go into hyperinflation and all hell breaks lose.
  - PragmaticPulp 6y ago
    Virtually any investment, other than cash or a money market account. Assets, stocks, real estate, all of the things that inflate with inflation. Crypto gets a lot of undue attention as a way to escape inflation, but investors have been investing in assets to losing buying power long before crypto came along.
  - tristanj 6y ago
    The market cap of crypto is not large enough to accommodate a several-dozen trillion dollar an outflow from stocks/bonds into it. Crypto would have to rise massively in value for that to happen. That's one of the bull cases for crypto.
    - tachyonbeam 6y ago
      > Crypto would have to rise massively in value for that to happen. No, crypto would rise massively if that were to happen.
- david927 6y ago
  Precious metals, commodities
  - jacquesm 6y ago
    Real estate. That's essentially an infinite sized sink for surplus capital.
    - david927 6y ago
      Primary residence real estate, yes! But otherwise, no. It's the least liquid asset class and liquidity will be king.
- adamcstephens 6y ago
  Why not cash? It doesn't matter where they flee to. Once everyone distrusts the market, a positive feedback loop begins and prices crater.
  - nostrademons 6y ago
    The same applies to cash once a critical mass of people believe there's an effectively unlimited amount of it flooding the market. That's what hyperinflation is. You really don't want to be in cash if that happens. See the performance of Venezuela's stock market over the last 5 years: https://tradingeconomics.com/venezuela/stock-market https://tradingeconomics.com/venezuela/stock-market (The "crash" in late 2018 was the redenomination of the bolivar at a 1:1000 ratio, which affected everything denominated in bolivars, including the stock market.)
    - adamcstephens 6y ago
      Ok, a savings account so that you can take advantage of the inflation? Honestly wealth growth is the least of my worries if we have another 1929 level crash or hyperinflation.
      - mattmanser 6y ago
        I thought banks don't actually keep up with the hyperinflation, so your saving eventually dwindle to worthless.
      - nealabq 6y ago
        My grandfather bought a mansion in SF (Dolores St) for $8K in 1934 (approx). You can optimize for a 1929-style crash (hold cash), and you can even plan for hyperinflation (anything but cash), so the trick is to figure out which way to go.
        pashamur 6y ago
        I think that's the appeal of Bitcoin and/or Gold: it's both cash in that it might act as a safe haven in the case of an asset crash and would retain it's value during hyperinflation (since you can't print more of it). Though bitcoin has really been untested as a safe asset and currently behaves more like a speculative one.
- scarmig 6y ago
  RMB?
- tambeb 6y ago
  Beanie Babies
- tofurocks 6y ago
  Sealed Pokemon booster boxes
wait_a_minute 6y ago
The majority of Americans do not have any real (or any at all) amounts of money invested in the market. That may change slowly as more people come online, but right now the majority of the stock is owned by a small percentage of the workers of the country. I'd expect there to be a very long road ahead of us before we find most Americans holding a sizable amount of their capital in the market or even in a bank account at all.
- robotresearcher 6y ago
  "Around 42% of the working-age population with a full-time job has a 401(k) or similar plan, and those funds are overwhelmingly invested in stocks" https://www.reuters.com/article/us-health-coronavirus-stocks-retail-expl/explainer-coronavirus-fears-hit-the-market-hard-how-much-did-ordinary-americans-lose-idUSKBN20Y1BZ https://www.reuters.com/article/us-health-coronavirus-stocks...
  - wahern 6y ago
    > only 33 percent of the population worked full time or more in 2016. Source: https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-americans-work-full-time/ https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-... > In 2018, the average account balance for Vanguard participants was $92,148; the median balance was $22,217. [emphasize added] Source: https://pressroom.vanguard.com/nonindexed/Research-How-America-Saves-2019-Report.pdf https://pressroom.vanguard.com/nonindexed/Research-How-Ameri... 33% * %42 = ~14%. And while the number is debatable, depending on how we define "significant", only a portion of that 14% has significant wealth invested in the stock market. I agree with the previous poster. The vast majority of Americans (including employed Americans) aren't invested in the stock market in any meaningful way.
- ErikAugust 6y ago
  "Just a modest majority of Americans, some 55%, own stocks, according to an April 2020 poll by Gallup, which asks whether households owned stocks either directly or as part of a fund." https://www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market/?sh=2e9a5d1b1154 https://www.forbes.com/sites/teresaghilarducci/2020/08/31/mo...
JMTQp8lwXL 6y ago
Is there anything wrong with using markets to store value? Must we also have government bonds to store value? If you're in a diversified US index fund, it's basically a bet that the US will continue to do well. If it doesn't, you have bigger problems than the financial.
- Barrin92 6y ago
  the primary purpose of a market is supposed to be to accurately allocate productive resources and pick winners and losers. In a market constantly flush with cash where everyone just buys index funds that discriminatory function basically vanishes and you have a political commitment to always make the stonks go up even if it supports zombie firms. Which is already the case tbh. Same with housing. Nimbyism is such a big deal in the US because rather than seeing housing as a utility that should be cheap, it's become a store of value that must always go up.
  - tachyonbeam 6y ago
    There's a growing movement to get away from index funds. This year, tech stocks have exploded. ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. Ultra-low interest rates tend to have people going for increasingly high-risk, speculative investments, such as tech companies. The bolder and more futuristic the vision, the better. Obviously, this could end badly as well, but, people are starting to pick individual stocks instead of index funds.
    - JMTQp8lwXL 6y ago
      The problem is knowing when to enter and exit the sector-specific funds. It might beat the S&P in a trailing 12 month window, but it's unlikely to do so over a 5 or 10 year window.
    - hyko 6y ago
      It will definitely end badly. I guess it’s driven by desperation for returns. Diversification is a risk reduction strategy as old as the Bible; stock picking is not about preserving wealth or growing wealth, it’s about bootstrapping it.
jacquesm 6y ago
That and real estate prices. People borrow insane amounts of money right now because they can due to the ridiculously low (in some places negative!) interest rates. Once those go up to reasonable levels (say, 5...10 % annually) suddenly they won't be able to pay for their house anymore and it's 2008 all over again.
- Cthulhu_ 6y ago
  When getting a mortgage, at least on my side of the pond, you get the option to fix the interest. I've set mine to 30 years fixed (the duration of the mortgage), because a few years ago it already seemed like the rates were bottoming out. I was wrong, but I don't regret fixing my mortgage interest rate. A more pressing matter is that people are no longer able to afford a house, especially if they're young / early in their career.
  - deleted 6y ago
    [deleted]
  - bambax 6y ago
    Same here. I would never have borrowed money on a variable interest rate.
    - panarky 6y ago
      I bought a home in 1998 with a variable-rate mortgage. The interest rate was 7.5% and my friends told me I was foolish not to pay 9.0% for a 30-year fixed rate mortgage. They calculated nightmare scenarios if rates doubled or tripled while theirs held constant. Every year since then, my interest rate reset downward until it hit the lower limit of 2%. Even though my required payment decreased, I kept paying the original payment amount and paid off the loan 10 years early. My friends paid hundreds of thousands in additional interest over the years for the peace of mind of a fixed rate. PSA: 2021 to 2031 might be different than 1998 to 2018.
      - zepto 6y ago
cft 6y ago
Or the dollar could just hyperinflate, which would end the market bubble. In which case the market bubble will never burst, as denominated in USD. Look at Venezuela's IBVC.
- adamcstephens 6y ago
  Hyperinflation of the dollar will be nothing like Venezuela. The dollar is the reserve currency in many nations, and the primary currency for oil. If we hyperinflate the entire global economic system will be impacted.

thinkingkong 6y ago

Flee to where?

the-dude 6y ago
Crypto?
- toomuchtodo 6y ago
  Central banks will outlaw it because they can't control it and devalue it (either through negative interest rates or helicopter money). Remember when the US outlawed holding gold? [1] [1] https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102
  - kinghajj 6y ago
    1. Central banks (at least, the US Fed) doesn't have the authority to declare crypto tokens illegal unilaterally. 2. EO 6102 made sense with the gold standard. It wasn't just an "FU" to gold hoarders, but a way to raise revenue to counter the depression. It's not clear to me that it would make sense for such a confiscation of crypto, especially if the legislature were to try option #1.
    - deleted 6y ago
      [deleted]
  - nostrademons 6y ago
    They probably will, but central government authority tends to collapse when hyperinflation begins. Venezuela (and the international community recognizing Venezuela) can't even agree on who the president is, and 60% of the Venezuelans who do work do so in the informal sector.
  - PragmaticPulp 6y ago
    People are giving too much credit to cryptocurrencies as the only vehicle for dodging inflation. Any asset that rises with inflation (most of them) is a sufficient vehicle for avoiding having your cash devalued. People could simply exchange their domestic currencies for foreign currencies of more stable countries. That's what happens in countries with hyperinflation right now, despite access to cryptocurrency. The only real advantage of cryptocurrency is that it could be transferred around hypothetical government controls. That's more of an extreme edge case scenario, though. To be clear: The US inflation is too high, IMO, but it's nowhere near hyperinflation or government collapse. The average citizen is more likely to benefit from recent stimulus packages than to lose out from it. It's not like everyone keeps their 401K invested in pure cash. That said, we're overdue for interest rates to start creeping up. COVID is coming to an end quickly and the unemployment never really got out of control in the first place. People aren't going to go bankrupt if their mortgages go back to 4-5% instead of 2-3%
    - nostrademons 6y ago
      > People could simply exchange their domestic currencies for foreign currencies of more stable countries Most of the developed nations are competitively devaluing their currencies. If one country does it, they gain a trade advantage: their exports are relatively cheaper on the world market, so consumption flows to their industries and makes them wealthy. Therefore once one country does it, they all have to do it, lest all their export industries become uncompetitive and they lose those jobs. I've heard some speculation (nicely backed up by data [1]) that the real reason we couldn't follow through with monetary tightening 2015-2018 is because it created a carry trade of investors borrowing in Euros and investing in dollars [2], which led to a continual outflow of dollars out the door. If hyperinflation hits it will likely hit nearly all the developed world in short succession. If the dollar goes, all investors are going to dump dollars for Euros, but if they do that the value of the Euro will skyrocket, which means European exports will become super expensive and Euro-denominated debt will be harder to pay off, which will spur European central banks to dump more Euros into the system. As long as we have free capital flows there's no way around this: inflation in one fiat currency will lead to inflation in others. That's why people are looking for non-fiat currencies. (You're right that tradable assets like stocks can fulfill this job rather than cryptocurrency, though.) [1] https://www.pimco.com.br/-/media/global-assets/resources/education/negative-interest-rates/pimco_education_negativeinterestrates_dec2016_fig1.ashx?vs=2&d=20200608172439&hash=6F738875B6A5CD075D764B03B3DDCED114E89C48&la=en-br https://www.pimco.com.br/-/media/global-assets/resources/edu... [2] https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac406 https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac...
  - tachyonbeam 6y ago
    > Central banks will outlaw it because they can't control it and devalue it Except that, many rich investors and large corporations are putting money into crypto as we speak. Some of those large investors may include people who work in the government and at central banks. I tend to think that, these people will have a conflict of interest there. It might be in their own best personal interest to not ban crypto, and to leave that door open. In other words, it might soon be too late to ban crypto. The ball already started rolling down the hill.
    - deleted 6y ago
      [deleted]
    - 1996 6y ago
      > In other words, it might soon be too late to ban crypto. The ball already started rolling down the hill. In other words, it might soon be too late to ban crypto. The ball already started rolling down the hill. Great analysis. Give it another few years: then when most of the S&P companies will hold crypto, along with your richest supporters and voters, trying to ban it will become political suicide.
  - tabs_masterrace 6y ago
    Remember Crypto knows no borders, it's decentralized, peer to peer, and private keys aren't seizable by force. Central banks may outlaw it, and that will hurt, but it's not going to put an end to it. Especially should USD go into hyperinflation and all hell breaks lose.
- PragmaticPulp 6y ago
  Virtually any investment, other than cash or a money market account. Assets, stocks, real estate, all of the things that inflate with inflation. Crypto gets a lot of undue attention as a way to escape inflation, but investors have been investing in assets to losing buying power long before crypto came along.
- tristanj 6y ago
  The market cap of crypto is not large enough to accommodate a several-dozen trillion dollar an outflow from stocks/bonds into it. Crypto would have to rise massively in value for that to happen. That's one of the bull cases for crypto.
  - tachyonbeam 6y ago
    > Crypto would have to rise massively in value for that to happen. No, crypto would rise massively if that were to happen.
david927 6y ago
Precious metals, commodities
- jacquesm 6y ago
  Real estate. That's essentially an infinite sized sink for surplus capital.
  - david927 6y ago
    Primary residence real estate, yes! But otherwise, no. It's the least liquid asset class and liquidity will be king.
adamcstephens 6y ago
Why not cash? It doesn't matter where they flee to. Once everyone distrusts the market, a positive feedback loop begins and prices crater.
- nostrademons 6y ago
  The same applies to cash once a critical mass of people believe there's an effectively unlimited amount of it flooding the market. That's what hyperinflation is. You really don't want to be in cash if that happens. See the performance of Venezuela's stock market over the last 5 years: https://tradingeconomics.com/venezuela/stock-market https://tradingeconomics.com/venezuela/stock-market (The "crash" in late 2018 was the redenomination of the bolivar at a 1:1000 ratio, which affected everything denominated in bolivars, including the stock market.)
  - adamcstephens 6y ago
    Ok, a savings account so that you can take advantage of the inflation? Honestly wealth growth is the least of my worries if we have another 1929 level crash or hyperinflation.
    - mattmanser 6y ago
      I thought banks don't actually keep up with the hyperinflation, so your saving eventually dwindle to worthless.
    - nealabq 6y ago
      My grandfather bought a mansion in SF (Dolores St) for $8K in 1934 (approx). You can optimize for a 1929-style crash (hold cash), and you can even plan for hyperinflation (anything but cash), so the trick is to figure out which way to go.
      - pashamur 6y ago
        I think that's the appeal of Bitcoin and/or Gold: it's both cash in that it might act as a safe haven in the case of an asset crash and would retain it's value during hyperinflation (since you can't print more of it). Though bitcoin has really been untested as a safe asset and currently behaves more like a speculative one.
scarmig 6y ago
RMB?
tambeb 6y ago
Beanie Babies
tofurocks 6y ago
Sealed Pokemon booster boxes

wait_a_minute 6y ago

The majority of Americans do not have any real (or any at all) amounts of money invested in the market. That may change slowly as more people come online, but right now the majority of the stock is owned by a small percentage of the workers of the country. I'd expect there to be a very long road ahead of us before we find most Americans holding a sizable amount of their capital in the market or even in a bank account at all.

robotresearcher 6y ago
"Around 42% of the working-age population with a full-time job has a 401(k) or similar plan, and those funds are overwhelmingly invested in stocks" https://www.reuters.com/article/us-health-coronavirus-stocks-retail-expl/explainer-coronavirus-fears-hit-the-market-hard-how-much-did-ordinary-americans-lose-idUSKBN20Y1BZ https://www.reuters.com/article/us-health-coronavirus-stocks...
- wahern 6y ago
  > only 33 percent of the population worked full time or more in 2016. Source: https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-americans-work-full-time/ https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-... > In 2018, the average account balance for Vanguard participants was $92,148; the median balance was $22,217. [emphasize added] Source: https://pressroom.vanguard.com/nonindexed/Research-How-America-Saves-2019-Report.pdf https://pressroom.vanguard.com/nonindexed/Research-How-Ameri... 33% * %42 = ~14%. And while the number is debatable, depending on how we define "significant", only a portion of that 14% has significant wealth invested in the stock market. I agree with the previous poster. The vast majority of Americans (including employed Americans) aren't invested in the stock market in any meaningful way.
ErikAugust 6y ago
"Just a modest majority of Americans, some 55%, own stocks, according to an April 2020 poll by Gallup, which asks whether households owned stocks either directly or as part of a fund." https://www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market/?sh=2e9a5d1b1154 https://www.forbes.com/sites/teresaghilarducci/2020/08/31/mo...

JMTQp8lwXL 6y ago

Is there anything wrong with using markets to store value? Must we also have government bonds to store value? If you're in a diversified US index fund, it's basically a bet that the US will continue to do well. If it doesn't, you have bigger problems than the financial.

Barrin92 6y ago
the primary purpose of a market is supposed to be to accurately allocate productive resources and pick winners and losers. In a market constantly flush with cash where everyone just buys index funds that discriminatory function basically vanishes and you have a political commitment to always make the stonks go up even if it supports zombie firms. Which is already the case tbh. Same with housing. Nimbyism is such a big deal in the US because rather than seeing housing as a utility that should be cheap, it's become a store of value that must always go up.
- tachyonbeam 6y ago
  There's a growing movement to get away from index funds. This year, tech stocks have exploded. ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. Ultra-low interest rates tend to have people going for increasingly high-risk, speculative investments, such as tech companies. The bolder and more futuristic the vision, the better. Obviously, this could end badly as well, but, people are starting to pick individual stocks instead of index funds.
  - JMTQp8lwXL 6y ago
    The problem is knowing when to enter and exit the sector-specific funds. It might beat the S&P in a trailing 12 month window, but it's unlikely to do so over a 5 or 10 year window.
  - hyko 6y ago
    It will definitely end badly. I guess it’s driven by desperation for returns. Diversification is a risk reduction strategy as old as the Bible; stock picking is not about preserving wealth or growing wealth, it’s about bootstrapping it.

jacquesm 6y ago

That and real estate prices. People borrow insane amounts of money right now because they can due to the ridiculously low (in some places negative!) interest rates. Once those go up to reasonable levels (say, 5...10 % annually) suddenly they won't be able to pay for their house anymore and it's 2008 all over again.

Cthulhu_ 6y ago
When getting a mortgage, at least on my side of the pond, you get the option to fix the interest. I've set mine to 30 years fixed (the duration of the mortgage), because a few years ago it already seemed like the rates were bottoming out. I was wrong, but I don't regret fixing my mortgage interest rate. A more pressing matter is that people are no longer able to afford a house, especially if they're young / early in their career.
- deleted 6y ago
  [deleted]
- bambax 6y ago
  Same here. I would never have borrowed money on a variable interest rate.
  - panarky 6y ago
    I bought a home in 1998 with a variable-rate mortgage. The interest rate was 7.5% and my friends told me I was foolish not to pay 9.0% for a 30-year fixed rate mortgage. They calculated nightmare scenarios if rates doubled or tripled while theirs held constant. Every year since then, my interest rate reset downward until it hit the lower limit of 2%. Even though my required payment decreased, I kept paying the original payment amount and paid off the loan 10 years early. My friends paid hundreds of thousands in additional interest over the years for the peace of mind of a fixed rate. PSA: 2021 to 2031 might be different than 1998 to 2018.
    - zepto 6y ago

cft 6y ago

Or the dollar could just hyperinflate, which would end the market bubble. In which case the market bubble will never burst, as denominated in USD. Look at Venezuela's IBVC.

adamcstephens 6y ago
Hyperinflation of the dollar will be nothing like Venezuela. The dollar is the reserve currency in many nations, and the primary currency for oil. If we hyperinflate the entire global economic system will be impacted.